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Behavioral and personnel economics

Articles in behavioral economics discuss the emotional and cognitive factors that influence the decisions of actors, in particular employers and employees. Personnel economics analyzes the internal organizational strategy of the firm and the human resource management practices chosen to pursue that strategy.

Greater representation of women may better
represent women’s preferences but may not help economic performance

Women's representation on corporate boards,
political committees, and other decision-making teams is increasing, this is
in part because of legal mandates. Evidence on team dynamics and gender
differences in preferences (for example, risk-taking behavior, taste for
competition, prosocial behavior) shows how gender composition influences
group decision-making and subsequent performance. This works through
channels such as investment decisions, internal management, corporate
governance, and social responsibility.

Increased competition affects the pay incentives
firms provide to their managers and may also affect overall pay
structures

Deregulation and managerial compensation are two
important topics on the political and academic agenda. The former has been a
significant policy recommendation in light of the negative effects
associated with overly restrictive regulation on markets and the economy.
The latter relates to the sharp increase in top executives’ pay and the
nature of the link between pay and performance. To the extent that
product-market competition can affect the incentive schemes offered by firms
to their executives, the analysis of the effects of competition on the
structure of compensation can be informative for policy purposes.

CEO pay, often contentious, is the product of
many forces

The escalation in chief executive officer (CEO)
pay over recent decades, both in absolute terms and in relation to the
earnings of production workers, has generated considerable attention. The
pay of top executives has grown noticeably in relation to overall firm
profitability. The pay gap between CEOs in the US and those in other
developed countries narrowed substantially during the 2000s, making top
executive pay an international concern. Researchers have taken positions on
both sides of the debate over whether the level of CEO pay is economically
justified or is the result of managerial power.

Happiness is key to a productive economy, and a
job remains key to individual happiness, also under robotization

Measures of individual happiness, or well-being,
can guide labor market policies. Individual unemployment, as well as the
rate of unemployment in society, have a negative effect on happiness. In
contrast, employment protection and un-employment benefits or a basic income
can contribute to happiness—though when such policies prolong unintended
unemployment, the net effect on national happiness is negative. Active labor
market policies that create more job opportunities increase happiness, which
in turn increases productivity. Measures of individual happiness should
therefore guide labor market policy more explicitly, also with substantial
robotization in production.

A good boss can have a substantial positive
effect on the productivity of a typical worker. While much has been written
about the peer effects of working with good peers, the effects of working
with good bosses appear much more substantial. A good boss can enhance the
performance of their employees and can lower the quit rate. This may also be
relevant in situations where it is challenging to employ incentive pay
structures, such as when quality is difficult to observe. As such, firms
should invest sufficiently in the hiring of good bosses with skills that are
appropriate to their role.

Gender quotas for women on boards of directors
improve female share on boards but firm performance effects are mixed

Arguments for increasing gender diversity on
boards of directors by gender quotas range from ensuring equal opportunity
to improving firm performance. The introduction of gender quotas in a number
of countries has increased female representation on boards. Current research
does not justify gender quotas on grounds of economic efficiency. In many
countries the number of women in top executive positions is limited, and it
is not clear from the evidence that quotas lead to a larger pool of female
top executives, who are the main pipeline for boards of directors. Thus,
other supplementary policies may be necessary if politicians want to
increase the number of women in senior management positions.

Blind recruitment can level the playing field
in access to jobs but cannot prevent all forms of discrimination

The use of anonymous job applications (or blind
recruitment) to combat hiring discrimination is gaining attention and
interest. Results from field experiments and pilot projects in European
countries (France, Germany, the Netherlands, and Sweden are considered
here), Canada, and Australia shed light on their potential to reduce some of
the discriminatory barriers to hiring for minority and other disadvantaged
groups. But although this approach can achieve its primary aims, there are
also important cautions to consider.

Financial incentives and changes in working
conditions are key to many broad and tailor-made programs

Do workplace programs help reduce worker
sickness absence? Many programs are based on the principle that the
employee’s decision to report an absence can be influenced if it is costly
to be absent. Firms can reduce absenteeism by implementing broad programs,
including performance pay, general improvements of working conditions, and
strengthening workers’ loyalty to the firm. Specific programs, such as
grading partial absence, seem to be effective at reducing long-term
absences. However, firms will be less inclined to implement such programs if
they can shift the financial burden to social security programs.

Family firms offer higher job security but lower wages
than other firms

Family firms are ubiquitous in most countries. The
differences in objectives, governance, and management styles between those firms and
their non-family counterparts have several implications for the workforce, which
scholars have only recently started to investigate. Family firms offer greater job
security, employ different management practices, have a comparative advantage to avoid
conflicts when employment relations are more hostile, and provide insurance to workers
through implicit contracts when labor market regulation is limited. But all this also
comes at a cost.

Business consulting and supervisory skills
training can improve firm productivity and labor relations

Productivity differences across firms and countries are surprisingly large
and persistent. Recent research reveals that the country-level distributions
of productivity and quality of management are strikingly similar, suggesting
that management practices may play a key role in the determination of worker
and firm productivity. Understanding the causal impacts of these practices
on productivity and the effectiveness of various management interventions is
thus of primary policy interest.